Arizona voters approve new limits on consumer debt collection

Consumer advocates secured a victory Tuesday in Arizona, with voters approving a measure that will lower interest rates on medical debt and increase borrower protection from debt collectors.

The measure, Proposition 209, passed by an overwhelming margin. He received the support of 72% of voters with more than two-thirds of the ballots counted, according to unofficial results.

Industry groups opposed the measure, saying debt collection provisions would restrict access to credit by making it more expensive for banks and other lenders to provide loans.

According to data from the Urban Institute, approximately 12% of adults in Arizona with a credit history have medical debt in collection. Voters in the state have overwhelmingly backed a ballot measure that will increase borrower protection.

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“It’s going to make credit less accessible — to what degree, I guess we’ll have to wait and see,” Paul Hickman, president and CEO of the Arizona Bankers Association, said in an interview after the election.

The ballot measure will make it riskier for banks to issue credit cards, auto loans, home equity loans and other types of consumer debt, Hickman argued.

But consumer advocates say the measure will ease Arizonans’ medical debt burden and protect critical assets such as homes and cars from debt collectors. These protections, they say, will help avoid major disruptions in people’s lives so they can continue to drive to work and earn income to pay their debts.

The limits will help Arizonans avoid a “horrible cycle” of debt, which has made people “less likely to get care and less likely to pay their bills” in full, said Liz Gorski, 33, a resident of Arizona, which is part of the Healthcare Rising Arizona Group that led the ballot initiative.

Gorksi said she was struggling with medical debt, due to a car accident when she was 15 that left her in a coma for days and led to lifelong medical complications.

Gorski said she spent her entire adult life battling debt collectors. Her credit score made her ineligible to buy a home without help from Habitat for Humanity, and she still pays high interest rates for any type of credit, she said. She expressed concern that her daughter would skip doctor visits after seeing her struggle with medical debt.

The Arizona initiative will lower the maximum allowable annual interest rate on medical debt from 10% to 3%. Debt collection protections cover all types of credit — not just medical debt — and increase the value of assets that may be exempt from the debt collection process. Proponents say the supply is essential in a time of rising house prices and auto values.

According to a fact sheet from Healthcare Rising, a person’s home equity of up to $400,000 will be protected from creditors, up from the current exemption level of $250,000. Protections for vehicles will increase to $15,000, up from $6,000 previously, and disabled drivers will benefit from a higher exemption amount. The measure makes annual adjustments for inflation starting in 2024.

It also reduces the share of borrowers’ wages that lenders can seize. The current limit is 25%, but this percentage will drop to 10% for many consumers and 5% for those in extreme economic hardship.

Banks doing business in Arizona will have to weigh updated rules when pricing a loan and consider its risk of default, said Allen Denson, a partner at law firm Stroock & Stroock & Lavan who represents consumer lenders.

Lenders will also have to adjust their procedures to ensure they comply with new state rules, Denson said, noting that regulators are increasingly monitoring banks’ compliance with wage garnishment rules. of the different states.

“That’s a source of increased risk,” Denson said.

In May, the Consumer Financial Protection Bureau a $10 million fine to Bank of America for allegedly processing garnishments that were not allowed in some states. The Charlotte, North Carolina bank said at the time that it had improved its processes and was refunding fees to customers in about 3,700 cases.

The Association of Credit and Collection Professionals, a trade group that represents debt collectors, said the measure would hurt those it is meant to help by making credit less available and more expensive.

“This overly broad and one-size-fits-all approach, without any consideration of a consumer’s needs or unique financial situation, will have long-term unintended consequences for Arizona’s credit-based economy,” said Andrew Madden, vice-president of ACA. International.

He said supporters of the measure pitched it to voters as a way to address high medical debt, even though it affects all types of consumer debt.

When asked about this criticism, Healthcare Rising Arizona said medical debt is a key factor behind most bankruptcy filings and that it affects people’s ability to pay their credit card bills and other types of debt.

About 12% of adults in Arizona with a credit history have medical debt in collection, a figure that jumps to 16% in communities of color, according to data from the Urban Institute.

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